Case Study #2
A New York investor purchased a portfolio of bank-owned property, all properties located in his home market except one, a retail complex within a Jewell Foods anchored shopping center in Chicago. The property comprised two buildings, one free-standing retail/office building and one strip-configured building connected to the Jewell Foods store.
The property was acquired in 2008 when the free-standing building was fully occupied and the strip building was more than 50% occupied. During the subsequent 8 years, the free-standing building became vacant and occupancy in the strip building fell to 43%, taking the overall occupancy of the property to 33%. The owner was faced with a long leasing period which would require leasing fees and tenant improvements. In addition to typical holding costs (taxes, insurance, utilities on vacant spaces) the owner needed to address unavoidable deferred maintenance to attract new tenants and to support the trade of the existing ones. The property fell to a C-level investment grade, and the owner’s attempts to sell the property for his target value met with no success.
Realty Gift Fund entered into a negotiation with the seller for a Bargain Sale, and the seller obtained a Qualified Appraisal of $3,000,000. Realty Gift Fund agreed to pay $600,000 in cash and to accept a charitable contribution for $2,400,000. The cash payment was used to retire the seller’s mortgage, fund immediate maintenance, and provide a nominal level of residual cash for the Donor.
RGF listed the property for $3,000,000 and set the marketing time to 6 months. Several potential buyers were engaged and two separate contracts were negotiated, creating a stepped liquidation, reducing RGF’s risk while optimizing an acceptable re-sale value. The first sale closed 30 days after RGF purchased the property, and the second sale closed within the 6-month targeted marketing period, providing RGF a fair level of excess cash which was used as grants to 20 charities supported by RGF and its participating consultants.
Realty Gift Fund
- For the Donor - Fulfillment of his charitable intent, benefits of a charitable deduction, and relief from the debt service, urgent deferred maintenance, and holding costs of a property becoming increasingly uncompetitive in a sub-market not in the Donor’s home market.
- For the Buyer - A realistic price to acquire properties that were substantially vacant and subject to associated holding costs, further repairs, expensive marketing campaigns, and likely tenant improvement allowances to attract new non-credit tenants.
- For the RGF - The benefit of a gift real estate with managed risk, and to convert real estate into excess cash to further the charity’s mission and to make 20 grants to worthy non-profits.